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If you have lost your home to foreclosure, or sold it for less
than you owed in a “short sale,” or if you had a car repossessed
or gave it back to the lender because you couldn’t make the
payments, you may have received a 1099-A and/or 1099-C form from
the lender. In a previous post, I discussed ways to avoid paying
taxes on income reported on Form 1099-C, Cancellation of
Indebtedness.

In this post, I will focus specifically on 1099-A forms. These
are typically generated when you lose a home or and investment
property, or have an automobile repossessed. Because the
dollar amounts involved in these transactions can be large –
involving tens or even hundreds of thousands of dollars – this is
one area where you truly can’t afford to get it wrong.

“I do five consults a day on this,” says William J. Purdy, an
attorney with a Master’s degree in taxation who practices in the
Law Office of Simmons & Purdy. “The American
middle class is in here talking about losing their homes. There’s
no end to the people who are coming in.”

When you lose a home to foreclosure, you may receive one or both
of these forms:

Some transactions – such as a foreclosure – can result in both
forms being sent to the taxpayer. Both of these forms essentially
provide similar information but in a different format, and which
one you’ll get largely depends on the lender.

“There is no consistency whatsoever in what they are doing,”
warns Purdy. “Some people get an A and some get a C.” He adds
ruefully, “The same people who issue these are the same people
who ruined the economy and engaged in reckless behavior. You
can’t guarantee that they are done correctly.”

Reading Form 1099-A

This form is used when you give up paying for a loan secured by
property. This form is typically associated with foreclosures,
short sales, or repossessions (including automobile
repossessions). Purdy walked me through a 1099-A form, and I’ll
do my best to do the same here.

This form is used when you give up paying for a loan secured by
property. This form is typically associated with foreclosures,
short sales, or repossessions (including automobile
repossessions). Purdy walked me through a 1099-A form, and I’ll
do my best to do the same here.

Box #2:

Balance of Principal Outstanding. This box should list only the
principal balance remaining on the loan, and should not include
interest or other fees.

Box #4:

The Fair Market Value (FMV) of the property. In the case of a
foreclosure, this will be the sale price if the home was sold. If
it was not sold, it will list the Fair Market Value at the time
the lender took back the home.